Aisha Rahman is British, owns a veterinary clinic in Sevilla and has been resident in Spain since 2016. In her draft Modelo 714 for 2025 she had deducted five debts: the 400,000 € left on the mortgage on her home, valued at 800,000 €; 30,000 € on a car loan; 90,000 € on a loan she took out to buy 40 % of the company that runs the clinic; 200,000 € for a guarantee she signed in favour of her brother's company; and 100,000 € on a loan the bank paid into her account on 15 December for a renovation starting in January. Total deducted: 820,000 €. What the law allowed her to deduct was well under half of that.
The starting point: real, proven debts at their face value
Article 9 of Law 19/1991 defines the tax base as the difference between assets and rights on one side and, on the other, "charges and encumbrances of a real nature", where they reduce the value of the assets, and the "personal debts or obligations" for which the holder is liable. Article 25.Uno adds two conditions: debts are valued at their face value on the accrual date, 31 December, and are only deducted if they are "duly proven".
Proving them means being able to show the contract and the certificate of the balance on that date. A verbal family loan, with no document or bank movements to back it up, is the debt most easily challenged.
Then come the exclusions. They explain almost all the mistakes.
Aisha's five debts, one by one
| Debt | Face value at 31-12 | Deducted? | Why | Deductible amount |
|---|---|---|---|---|
| Mortgage on the main home | 400,000 € | In part | The home is exempt up to 300,000 € (arts. 9.Tres and 25.Tres) | 250,000 € |
| Car loan | 30,000 € | Yes | Proven personal debt | 30,000 € |
| Loan to buy 40 % of the company | 90,000 € | It depends | If the shares are exempt as a family business, no | 0 € or 90,000 € |
| Guarantee for her brother's company | 200,000 € | No | Only when the guarantor is obliged to pay because the debtor has defaulted (art. 25.Dos.a) | 0 € |
| Loan paid in on 15 December | 100,000 € | No | Paid into the account in the last quarter (art. 12) | 0 € |
The mortgage calculation, step by step
Article 25.Tres prohibits deducting debts taken on to acquire exempt assets and, where the exemption is partial, allows "the proportional part" to be deducted. Aisha's home is worth 800,000 € and is exempt for 300,000 €.
- Exempt part of the home: 300,000 ÷ 800,000 = 37.5 %.
- Non-exempt part: 62.5 %.
- Deductible mortgage: 400,000 × 62.5 % = 250,000 €.
- Non-deductible mortgage: 150,000 €.
This is the usual mistake with the home: deducting the whole mortgage while applying the 300,000 € exemption. The same house would be used twice. How it works in a marriage, with two exemptions, is in whether the main home counts.
The loan for the shares
If the 40 % of the company meets the requirements for the family business exemption (a genuine business activity, a large enough holding, management functions and main remuneration), those shares are not taxed and, consistently, the loan used to buy them is not deducted. If the exemption is partial, because the company holds assets not used in the business, the debt is deducted in the same proportion in which the shares are taxed. If it does not meet the requirements, the shares are taxed in full and the loan is deducted in full. That is why this row cannot be closed without first reviewing the exemption; we go into it in whether my company is exempt.
In Aisha's case, as she runs the clinic and is paid more than half of her income for it, the exemption applied to the part used in the business. The loan is only deducted in the non-exempt proportion.
The guarantee: not your debt yet
Signing a guarantee does not make you a debtor as long as the main debtor pays. Article 25.Dos.a only allows the guaranteed amount to be deducted when the guarantor is obliged to pay because action has been taken against the debtor and the debtor has been unable to pay; if the obligation is joint and several, when the right is exercised against the guarantor. As long as her brother's company is up to date, the 200,000 € do not count.
The December loan and the average balance
Article 12 values accounts at the higher of the balance on 31 December and the average balance for the last quarter. Its last paragraph adds a rule designed to stop year-end manoeuvres: where the amount of a loan is paid into an account in the last quarter, it is not counted in calculating the average balance and it is not deducted as a debt either.
The rule does not say that the money disappears from the balance on 31 December. If the 100,000 € were still in Aisha's account on that day, they form part of that balance, and the account is valued at the higher of the two. The result is harsh: the money counts as an asset and the debt is not deducted. Anyone who takes out a loan in the autumn for an investment to be made in January should know that, for the purposes of this tax, the transaction is not neutral for them.
If you bought an asset paying part of the price later, what is deductible is the deferred price, which appears as a debt of the buyer (art. 8). The mortgage securing it is not deducted separately (art. 25.Dos.b). Adding the two together is a frequent mistake in purchases of land and commercial premises between private individuals.
What Aisha could deduct
- Mortgage: 250,000 €.
- Car: 30,000 €.
- Loan for the shares: only the proportion corresponding to the non-exempt part of the company.
- Guarantee: 0 €.
- December loan: 0 €.
Compared with the 820,000 € in the draft, the deductible amount came to 280,000 € plus a fraction of the loan for the shares. The tax base rose by more than half a million. Even so, she had no tax to pay under her region's rules, and her assets did not reach 2,000,000 €, so she was not obliged to file. But the exercise showed that one year of growth in her portfolio would have put her on the other side.
If you are a non-resident
Someone taxed on a non-resident basis can only deduct charges on assets located in Spain and debts for capital invested in them (art. 9.Cuatro). A mortgage on a house in London or a British personal loan deducts nothing in the Spanish Modelo 714. We explain it together with the other rules in what I declare as a non-resident.
Documents to prove each debt
- A bank certificate of the capital outstanding on 31 December for each loan.
- The loan agreement, which proves its purpose; that is what shows whether it financed an exempt asset.
- For loans between private individuals, a document with a verifiable date and a bank trail of the amounts lent and the repayments.
- For guarantees, the contract and, if it has been called on, the claim received.
If you would like us to review which part of your debts is deductible, you can send us that paperwork through the wealth tax form. The guide on valuing assets for wealth tax covers the rules on the asset side.
The main home exemption, deductible debts and the rest of the Modelo 714 calculation are dealt with on the Salama Tax page on the wealth tax.